Markit, a provider of independent data, portfolio valuations and OTC derivatives trade processing, has announced that Bear Stearns, Goldman Sachs and Lehman Brothers are the first dealers to sign up to its new electronic affirmation service which launched last Wednesday.
The new service, which builds on Markit's existing affirmation model, Markit Trade Processing (MTP), is able to electronically match trades between counterparties prior to confirmation, the firm says. Alternative vendor affirmation solutions provide a connectivity mechanism that routes information between sell-side and buy-side firms.
MTP allows clients to reduce risk by automating the post-trade lifecycle for all OTC derivative instruments. It provides trade date affirmation and trade confirmation through industry utilities including the Depository Trust & Clearing Corporation (DTCC). Markit sends more trades to the DTCC's Deriv/SERV platform than any other service provider.
Markit's platform also supports non-STP (straight through processing) workflow. This is particularly useful for processing equity derivatives which are likely to remain a hybrid environment of paper and electronic confirmation methods, the firm notes.
The launch of Markit's cross-asset electronic matching service coincides with a surge in demand for equity derivative processing solutions to tackle the backlogs building up in the asset class. A letter sent by the New York Federal Reserve to major market participants in May this year stated that "there remain significant challenges to automating the equity derivatives infrastructure… Additionally, dealers have not maintained the backlog reduction levels achieved in January 2007."
"As the derivatives market continues to grow substantially in both volume and complexity, our challenges associated with manual processing have also grown," states Terrance Berland, senior managing director, Bear Stearns. "We are quite excited about the potential that Markit's trade processing platform provides us to address these challenges across credit, rates and equities."
"The OTC derivatives markets continue to grow, and market participants are very aware of the need for automation to achieve operational efficiency," notes Bradford S. Levy, managing director, Goldman Sachs. "Goldman Sachs and its clients require trade processing services that handle all types of OTC derivatives, including new instruments such as ABCDS and LCDS, seamlessly. We have very rigorous controls and processes, and chose Markit's trade processing service because it is the most comprehensive solution in the marketplace today."
Jeff Gooch, executive vice president and head of processing and valuations at Markit, says, "Having launched an affirmation service that connected counterparties twelve months ago, it became clear that funds and dealers operate in many different ways. Markit has therefore launched a new version of the service which is the first of its kind, allowing complete flexibility to cater for an institution's preferred operating method."
He continues, "By offering electronic matching prior to confirmation in addition to more traditional affirmation models, we enable our clients to meet their needs in equities, credit and rates, including meeting the new Fed targets for equity derivatives."